May 9 (Bloomberg) -- Banco Santander SA is selling $1.5
billion of contingent convertible notes to comply with new
capital regulations, in its first sale of the riskiest bank debt
in the U.S. currency.

Spain’s biggest bank will price the additional Tier 1 notes
to yield 6.375 percent, according to a person with knowledge of
the matter, who asked not to be identified because they’re not
authorized to speak about it. The undated notes will convert to
equity if the bank’s capital falls to 5.125 percent of assets
weighted by risk and the company has the right to buy them back
after five years, the person said.

Sales of the bonds that can be written off or converted to
shares in a crisis are increasing as lenders move to comply with
new European Union regulations that aim to pass bailout costs
from troubled banks to investors rather than taxpayers.

Compliance Policy

Fund Managers’ Complex Bills Targeted in Regulatory Review

The U.K. markets regulator is targeting the way asset
managers bill clients with a second review of the industry after
the watchdog said funds shouldn’t pass all their research costs
on to customers.

The Financial Conduct Authority issued rules yesterday
barring investment managers from using dealing commissions to
bill for anything beyond the cost of executing orders, while
allowing costs for “substantive research” to be passed on,
after finding clients were often overcharged. As soon as next
week, the FCA may recommend greater fee transparency following a
yearlong review of the industry.

Yesterday’s rule change allows fund managers to bill
clients for research through the trading commission if it is
original, has critical analysis and adds value to trading
decisions. The FCA estimates that trading commissions total
about 3 billion pounds ($5.1 billion) a year in the U.K., half
of which has been allocated to research.

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Muni-Bond Regulator to Seek U.S. SEC Approval of Pricing Rules

A regulator of the $3.7 trillion municipal-debt market will
seek approval for rules aimed at preventing investors from being
shortchanged by brokers when trading state and local-government
bonds.

The Municipal Securities Rulemaking Board, which drafts
regulations for the bond industry, said in a statement May 6
that it will ask the U.S. Securities and Exchange Commission to
impose the requirements on trading firms.

The rules, proposed in February, would require brokers to
seek the most favorable prices possible while trading on behalf
of individual investors in the municipal-bond market, which
lacks a centralized exchange. The MSRB said the step may boost
competition and lower trading costs for investors.

Interviews/Commentary

Broker Role as Order Router Should Be Reviewed, SEC’s Stein Says

Investors should be given more information about where
brokers send a stock order to be filled and whether that
decision yielded the best price, a member of the U.S. Securities
and Exchange Commission said yesterday.

Additional disclosure would help investors know whether
their broker is serving their best interest or routing orders to
avoid fees or capture rebates, Commissioner Kara M. Stein said
at a Washington conference sponsored by the Council of
Institutional Investors. The SEC is weighing such a plan as part
of a review of how stocks are traded, according to three people
familiar with the matter.

The SEC is facing pressure to overhaul trading rules after
publication of “Flash Boys,” by Michael Lewis, a columnist for
Bloomberg View. The book alleged that high-frequency traders
benefited from exchange rules to take advantage of slower
investors.

U.S. Risk Council Says Money Funds Can Be Vulnerable During Runs

A U.S. council of regulators said money-market funds can be
vulnerable to runs during periods of volatility when
shareholders perceive “worrisome risk exposures” in the funds,
the group said in a report.

The Financial Stability Oversight Council described the
findings in its annual report released May 7 in Washington.

FSOC has been studying whether the largest asset managers,
such as BlackRock Inc. and Fidelity Investments, could be
systemically important and need Federal Reserve supervision. Any
decision on whether to designate asset managers as potentially
risky may be months away.

The Securities and Exchange Commission is weighing a rule
that could require a class of money-market funds to float their
share price, abandoning a stable $1 target that makes them
appear riskless to many investors.